TSP's Roth option to launch May 7

Apr. 11, 2012 - 06:00AM
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The new investment option, which has been in the works for nearly three years, will allow participants to invest after-tax earnings into funds that will grow without tax liability on future earnings. This differs from the standard TSP plan, where before-tax dollars are invested and taxed when they are withdrawn.

"The Roth TSP option offers an important new tool for federal civilian employees and uniformed service members in managing their retirement income by providing greater flexibility in the tax treatment of contributions now and in the future," said Greg Long, executive director of the Federal Retirement Thrift Investment Board, which manages TSP.

But the Roth option won't be a benefit to all TSP participants. Military service members and certain federal employees, such as judges, who are likely to have lower taxes while they work, will see the most benefit. But most federal civilians would probably be better served by staying with the standard TSP plan.

Long said the board will keep educating participants and agencies on the pros and cons of the Roth option. He advised participants to consult their own financial advisers on whether the Roth will benefit them.

The Roth option won't be available to all participants right away. The board said not all agencies or services have finished modifying their payroll systems to handle two streams of contributions coming into TSP — both pre-tax and post-tax. Those organizations will need more time to finish, the board said, though it did not say how many or how much longer.

Congress first authorized the TSP board to launch a Roth option in June 2009. The board began working with payroll offices across the government in December 2010 to overhaul their systems to handle the Roth option.